Question

December 31 2021 2022 2020 2023 Current liabilities: Current portion of non-current debt Interest payable Non-current liabilities: Long-term debt................ Problem 10-2A Asset purchased with a note LO2,3 cm Quebec Construction Company purchased some equipment on September 10, 2020, that had a cost of $190,000 (ignore GST/PST). Show the journal entries that would record this purchase and payment under these three separate situations: a. The company paid cash for the full purchase price. b. The company purchased the equipment on credit with terms 1/30, n/60. Payment was made on October 9, 2020. c. The company signed a 12%, one-year note for the full purchase price. The note was paid on September 10, 2021, the maturity date. Ignore year-end accruals. Analysis Component: What would the impact be on the financial statement at year-end if the company signed a note? What ratio would be affected?

Answer 1

	Account titles and explanation	Debit	Credit
a.	Equipment	$190,000
	Cash		$190,000
	(equipment purchased for cash)
b.	Equipment	$188,100		(190,000*99%)
	Account payable		$188,100	(190,000*99%)
	(equipment purchased on credit)
c.	Equipment	$190,000
	Note payable		$190,000
	(equipment purchased by issuing note)
	If the company issues Note against equipment purchase, Interest expense will be booked till year end.
	Further, it will decrease long term debt to equity ratio of the company.

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